The Merchant Marine Act of 1920

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THE MERCHANT MARINE ACT OF 1920

WESLEY L. JONES
IT. S. Senator from Washington, Chairman of Commerce Committee

THE Merchant Marine Act of 1920 is an earnest effort
to lay the foundation of a policy that will build up
and maintain an adequate American merchant marine
in competition with the shipping of the world.

The first section declares that the United States needs for
national defence and the proper growth of its commerce a
merchant marine of the best type of ships sufficient to carry the
major part of its commerce, such vessels to be owned ultimately
and operated privately by its citizens. It asserts it to be the
policy of the United States to do whatever may be necessary
to secure such a merchant marine, and the Shipping Board is
directed to keep this purpose and object always in view as the
primary end to be attained in the disposition of our ships, in
the making of rules and regulations and in the administration
of the shipping laws. This expresses the thought, desire, pur-
pose and aim of the American people. This section is the
chart to guide and the yardstick to measure every act of the
Shipping Board and should be kept in mind in the construction
of every provision of the act and in every decision the board
may make.

A shipping board of seven commissioners is to be appointed
by the President. They are to hold office for six years and to
receive a salary of $12,000 per annum. Their special fitness
for the work they are to do is to govern their selection, and
all important sections of the country are to be represented. All
the ships and other property of the United States acquired
by the President during the war except those in the military
and naval service of the United States are transferred to the
board, to be controlled, used and sold by it to citizens of the
United States. While certain principles are laid down to be
followed by the board in making sales, it is expressly directed
to seek to achieve the declared purposes of the act and to carry
out the policy declared in section 1. In the last analysis the

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go AMERICAN FOREIGN TRADE RELATIONS [Vol. IX

board can dispose of the vessels and property of the United
States upon such terms and under such conditions as in its
judgment will accomplish this purpose. If the board finds
that certain vessels are unnecessary to the promotion and
maintenance of an American merchant marine and cannot be
sold to citizens of the United States, it may sell such vessels
to aliens upon a vote of five of its members. Vast and un-
usual powers are given to this board. This must be done.
The work to be done is as important and difficult as any that
confronts the Government, if it is not the most important.
The board must have wide discretion and vast power to meet
the diverse situations that will confront it. It can make or
mar our merchant marine. The success of the Merchant Ma-
rine Act depends upon it. Men of the greatest ability, the
widest experience, the most unyielding firmness and the most
intense Americanism, men moved by the spirit and purpose of
the act, must be put upon this board. No richer reward can
come to any man than to have a large part in doing the great
thing ths board is to do.

Section 7 authorizes and directs the board to investigate and
determine as promptly as possible what steamship lines should
be established and put in operation to promote, develop, ex-
pand and maintain our foreign and coastwise trade and pro-
vide for an adequate postal service and to sell or charter ships
to citizens who will agree to establish and maintain such lines.
The board is given a wide discretion in fixing the terms and
conditions that will secure this service and if private citizens
cannot be secured to supply it the board is directed to operate
vessels itself on such lines until business is developed that will
lead to a satisfactory arrangement by private parties to carry
them on or it shall appear that such lines cannot be made self-
sustaining. To aid in this the Postmaster General is author-
ized to contract for the carrying of mails over such lines at
such price as may be agreed upon by himself and the board.
To encourage the establishment of lines from various ports
preference in the sale of vessels for these purposes must be
given to citizens who have the support of the domestic com-
munities primarily interested in such lines if the board is satis-
fied of the ability of such persons to maintain the service de-
sired. This is a section of far-reaching importance and, if

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No. 2] THE MERCHANT MARINE ACT OF 1920

91

wisely administered, should go a long way toward developing
a merchant marine upon a stable basis and lead to a great and
permanent expansion of our commerce and the creation of
banking facilities and commercial agencies now so much needed.
If our business men are assured of certain, regular and perma-
nent transportation facilities between ports and markets they
will establish the necessary banking facilities and commercial
agencies.

The board is authorized to create, maintain and administer
a separate insurance fund which may be used to insure, in
whole or in part, vessels and plants owned by the board against
all hazards commonly covered by insurance policies in such
cases.

During a period of five years, the board may set aside
annually out of the revenues from sales and operations the
sum of $25,000,000 to be known as a construction loan fund.
This fund is to be used in aid of the construction of vessels of
the best and most efficient type for the establishment and main-
tenance of service upon steamship lines deemed necessary by
the board. Aid may be given up to two-thirds of the cost of
the vessel to be constructed, ample security being required by
the board to insure repayment of the sum advanced. While we
have a large tonnage built under the needs of war, our ship-
ping is sadly lacking in up-to-date combination freight and
passenger ships. We must have such ships to compete with
our rivals. They are especially needed in the South American
and Oriental trades. Under this provision it is hoped that
the building of such vessels wll be encouraged and a well-
balanced fleet secured.

During the war great docks, piers, warehouses and terminal
equipment and facilities were constructed or acquired at various
ports by the United States. These facilities ought to be a great
aid in the development and operation of a merchant marine.
The agency whose special responsibility it is to build up such
merchant marine was deemed the best agency to have control
of these facilities and they are to go into the possession and
control of the Shipping Board on January 1, 192 1, ample pro-
vision being made, however, to take care of any emergency
needs of the War or the Navy Department. Preference in the
use of these facilities should always be given to American ships.

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g 2 AMERICAN FOREIGN TRADE RELATIONS [Vol. IX

No vessel purchased from the board or documented under
the laws of the United States can be sold, transferred or mort-
gaged to an alien without the approval of the board being first
obtained, and any vessel chartered, sold, transferred or mort-
gaged to an alien without the consent of the board shall be
forfeited to the United States and those violating this pro-
vision are subject to fine or imprisonment. The purpose of
this is obvious.

Section 19 is one of far-reaching consequence. The more
one knows of the handicaps put upon our shipping by foreign
rules and regulations and by the diverse and conflicting rules
and regulations of our own departments, the more important
this section appears. It not only authorizes the board to make
rules and regulations necessary to carrying out the provisions
of the act but it also authorizes the board to make rules and
regulations affecting shipping in the foreign trade not in con-
flict with law in order to meet general or special conditions
that may be unfavorable to our trade which arise out of for-
eign laws, rules or regulations, or from competitive methods
or practices employed by owners, operators, agents or masters
of vessels of a foreign country. This will enable the Ship-
ping Board to meet promptly orders in council and other
similar acts of other countries which have heretofore been used
to the great disadvantage of our shipping. In order to secure
uniform rules and regulations upon the part of the various
departments affecting shipping, the board may request the
suspension, modification or annulment of rules or regulations
made by any such department, or it may request the making of
new rules or regulations; and it is also provided that no rule
or regulation shall hereafter be made until the same has been
submitted to the board for its approval. In case of a dis-
agreement between the board and any department as to these
rules or regulations such disagreement is submitted to the
President and his decision is final. This, if properly and firmly
carried out, will result in uniform rules and regulations affect-
ing our shipping that cannot help but be of great benefit, and
it will also prevent the making of any rule or regulation until
its effect upon our shipping is duly considered.

Section 20 is intended to place in the Shipping Board and
the Secretary of Commerce ample power to prevent unfair

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No. 2] THE MERCHANT MARINE ACT OF 1980 93

methods and unjust discriminations upon the part of foreign
shipping against our shipping and our commerce and provides
that if the board determines that any person has violated any
of the provisions of section 20 and is a party to combinations,
agreements or understandings prohibited and will certify this
fact to the Secretary of Commerce, the Secretary shall refuse
the right of entry to any ship owned by such person or by
any carrier directly or indirectly controlled by him into any
port of the United States until the board certifies that such
violation has ceased or that such combination, agreement or
understanding has been terminated. If our carriers give re-
bates we can punish them. If our foreign competitors give
rebates we cannot do so. If our carriers cannot give rebates
and their competitors can ours must fail. Any means we can
adopt to put us on an equality should be applied. This section
will do it. It is solely in the interest of f airplay and just
treatment to us and should be used firmly.

Under section 21 the coastwise laws of the United States
are extended to our island territories and possessions after
February 1, 1922, if adequate steamship service at reasonable
rates to accommodate the commerce and passenger travel has
been established, and the board is directed to establish and
maintain such service until it can be taken over and operated
by private capital and enterprise. To insure that none of these
possessions will be without adequate service the President is
authorized to extend the period within which such coastwise
laws are to be extended for such time as may be necessary for
the establishment of adequate shipping facilities. The trade
of some of our island possessions is over a hundred million
dollars a year. It has been largely carried in foreign ships.
It ought to be carried in American ships and offers an oppor-
tunity not only to put under the American flag more ships but
ships of the highest type and most desirable for ocean com-
merce. The carrying of that trade should be ours. We can
have it if we will. If we do not take it no one is to blame but
us. With the assurance given private enterprise should pre-
pare to handle this trade.

Section 23 gives special encouragement to the building of
new and up-to-date ships. It exempts, for a period of ten
years, the owners of vessels documented under the laws of the

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94 AMERICAN FOREIGN TRADE RELATIONS [Vol. IX

United States and operated in the foreign trade from income,
war-profits and excess-profits taxes if such taxpayer either
invests or sets aside in a trust fund for investment an equiva-
lent amount to be used in the building of vessels of the type
and kind approved by the Shipping Board, with a provision
that at least two-thirds of the cost of such vessel so constructed
shall be paid for out of the private funds or capital of the
person having such vessel constructed. It is also provided
in this section that any person who may sell a vessel docu-
mented under the laws of the United States and built prior to
January I, 1914, shall be exempt from these taxes if the entire
proceeds of such sale shall be invested in the building of new
ships of a type to be approved by the Board. Our merchant
marine needs fast passenger and fast combination freight and
passenger ships very badly. It is hoped this provision will
be an aid in securing them. I understand that over 300,000
tons have been contracted for under this provision already —
mostly, however, tankers, which are greatly needed.

Section 24 requires all United States mails carried on vessels
to be carried on American-built vessels if practicable. The
Board and the Postmaster General shall determine from time to
time the just and reasonable rate of compensation to be paid for
a satisfactory postal service and the Postmaster General is au-
thorized to enter into contracts within the limits of appropria-
tions therefor made by Congress to pay for the carrying of
such mails in such vessels. We have been paying about
$3,000,000 a year for the carrying of our mails on ships and
of this sum about two and a half millions has been paid to
foreign ships, thereby practically subsidizing them to that ex-
tent. By proper cooperation between the Shipping Board and
the Postmaster General this provision can be of great aid in
developing and maintaining regular shipping lnes.

In the hope of developing an organization in this country
similar to Lloyds, Section 25 requires that all vessels owned by
the United States shall be classified by the American Bureau
of Shipping so long as that bureau is maintained as an organi-
zation without capital stock and pays no dividends. The Sec-
retary of Commerce and the chairman of the Shipping Board
shall each appoint a representative to represent the Government
upon the executive committee of the American Bureau of Ship-

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No. 2] THE MERCHANT MARINE ACT OF 1980 gj

ping, who shall serve without compensation. Lloyds has been
a great factor in building up the British marine. We hope to
make the American Bureau of equal help to our marine.

Much objection has been made to Section 28. A large part
of this criticism, though honestly made by our people, I am
convinced has its origin in alien interests. Under the Railroad
Transportation Act the Interstate Commerce Commission may
allow preferential rates over American railroads on imports
or exports. These preferential rates under that act apply to
imports or exports whether carried in alien ships or American
ships. The Shipping Board investigated the matter carefully
and came to the conclusion that such preferential rates should
not be applied to imports and exports carried in alien ships
if American ships were available, and the sole purpose and
effect of Section 28 is to provide that if American shipping is
available then preferential freight rates shall not be given to
imports or exports carried over American railroads unless such
exports or imports are carried in American ships. The wise
application of this provision rests solely with the Shipping
Board and the Interstate Commerce Commission. The power
given them can be made of tremendous benefit to American
shipping and American commerce, and the people of the coun-
try and of the various ports should feel that this power will
be used in their interests and not to their injury.

Under Section 29 encouragement is given to the development
of American marine insurance companies or organizations by
exempting such associations from the operation of the anti-
trust law. American capital does only about ten per centum
of our hull insurance and only about thirty per centum of our
other marine insurance. Every possible encouragement should
be given to it to do our own insurance. If it won't do it the
Government very likely will do it. American insurance is
almost if not essential to a permanent marine.

Section 30 is a very complicated section, but the purpose and
object of it are to encourage the investment of American
capital in ships and shipping securities. It gives such invest-
ments a security not heretofore enjoyed and makes a mortgage
upon a ship a prior lien except as to certain specified claims.

Considerable discussion has arisen with reference to Section
34, which directs the President to give notice of the abrogation

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g6 AMERICAN FOREIGN TRADE RELATIONS [Vol. IX

of the provisions of certain commercial treaties. The purpose
of this section is to terminate in an orderly, courteous and
diplomatic way treaties which are detrimental to our interests
and which prevent us from doing what we think ought to be
done to encourage and build up our American merchant
marine. We could pass such legislation if we desire and abro-
gate these treaties in this way. This is not the proper and
courteous way to deal with such matters. No complaint by
foreign countries can be made against the method provided
in this act. We are seeking to do only what other countries
are doing. France has already notified us of her intention
to terminate her commercial treaty with us, and she has given
a smilar notice to Great Britain, Canada, Spain, Greece and
other countries. Spain, Italy, Norway, Greece, Sweden, Bul-
garia, Great Britain and other countries are getting rid of
treaties that may hamper them in the contest for the world's
trade. It will be little short of criminal if we do not free
ourselves from those things that shackle us and prevent us
from doing what we know is for our best interests. These
other countries are looking after their own interests. If we do
not look after ours, no one else will.

Wherever possible alien interests are hiring the best Ameri-
can legal talent, buying the highest American writing ability,
controlling the most powerful American papers, journals and
magazines and cajoling or coercing American officials to serve
their end. Their paid agents will be found in meetings like
this to point out dangers and difficulties. They will present
to public officials cogent reasons why it will be unwise to take
this course or follow that policy. Business men will be threat-
ened by their business connections and communities will be
intimidated by threatened withdrawal of transportation facili-
ties. Professors in our colleges and theorists in our army
and navy will be encouraged to urge that those who seem to
be especially fitted or trained to do the ocean-carriage should
be allowed to do it without competition.

They will overlook the terrible experience that came to
us at the beginning of the world war as the result of such a
policy. Our shipping could be done more cheaply by others,
and so we had none. When the war came this lack of shipping
cost us hundreds of millions of dollars in higher freight rates

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No. 2] THE MERCHANT MARINE ACT OF 1920 gj

or business losses and hundreds of millions of waste in the
hasty building of ships to meet the emergency that threat-
ened the overthrow of civilization, and today the papers are
filled with stories of waste, corruption and inefficiency that
was the inevitable result of the conditions and the situation
that confronted us.

The man or the paper who would discourage the upbuilding
of our merchant marine is fighting the battle of alien interests.
We have the brains; we have the ability; we have the energy,
and we have the means to build up an American merchant
marine. We have the need to stimulate us to do it, and if
every true American citizen will determine to do his part to
this end and not allow us to be diverted by fear, threats or
cajolery from that great purpose we will succeed.

If the American people want an American marine they must
be willing to work and sacrifice for it. Support must be given
to those who seek to built it up. Counsel must be taken of cour-
age and not of fear. Our competitors will deceive us, scare
us, bluff us or destroy us if they can. " Fairplay ", the great
shipping organ, of London, said frankly a short time ago :

When it has been a question of the survival of the fittest we have invariably
done our level best to crush or mold opposition, and, as regards America's
new mercantile marine, we shall go on doing it and expect her to do the
same by us.

We do not seek to crush Britain's marine, but we do desire to
build up a merchant marine ample to do the major part of our
own ocean-carriage and that part of the world's carrying com-
mensurate with our wealth, power and standing among the
nations of the world. This is necessary for our commercial
growth, our national defence and national independence, and
it is necessary for the world's peace and safety. If one nation
dominates the shipping of the world it holds the destinies of
all peoples in its grasp.

I had something to do with the drafting of our merchant
marine act. I know the spirit that moved those who wrote it.
Partisanship had no place in its consideration. We acted as
Americans and not as partisans. Every word, every line,
every paragraph and every section was written solely in the
interest of the United States. We seek to assure our people

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98 AMERICAN FOREIGN TRADE RELATIONS

equal treatment, square dealing and a fair chance in the world's
carrying business. With this they can hold their own with
any ships. There may be provisions in the act that ought not
to be there. Experience will show them and they will be re-
moved. There are many things that should be added and I
hope this will be done. Destructive criticism alone will en-
courage and aid our competitors. Constructive criticism will
help us. If every American will place the nation's good
above individual welfare; think, talk and act Americanism
and give whole-hearted support to the law passed to aid the
United States and uphold those who administer it solely in the
interest of the United States and its citizens, we will have an
adequate merchant marine that will secure our own interests
and promote the world's welfare.

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